RFID tags arrive on store floor as retailers go after ROI

For the retailing industry, the adoption of radio-frequency identification (RFID) technology this decade has been one long, strange journey: Periods of irrational exuberance followed by times of great frustration and confusion; expensive pilot projects riddled with technical, standards-based and cost complexities; and a widespread belief among those retailers or CPG manufacturers that were forced into the RFID universe that it is a technology solution in search of a problem.

No one - not even Wal-Mart, which famously kicked off its crusade toward retail RFID nirvana in 2003 - ever said retail RFID projects were going to be easy.

"This isn't Microsoft Office. It's not something you can put on a disk and install," says Dennis Gaughan, a managing VP in Gartner's enterprise software research team. "You're bridging the physical world and bits and all sorts of environmental considerations that impact the efficacy of the technology. There's no cookie cutter approach, like other technology deployments."

But in 2010, all that RFID hype and hard work has finally given way to targeted deployments and pockets of success. Gaughan contends that RFID is quietly making a comeback.

[ Read how RFID lead to Wal-Mart losing its IT edge and how IT departments are using RFID technology to track IT assets ]

First off, price points on tags, hardware, software and RFID expertise have become more palatable. In addition, many of RFID's infamous roadblocks--such as managing wireless signals, resolving back-end IT and supply chain integration problems, and grasping those immutable laws of physics--have been cleared.

And as they've gained greater understanding, retailers have become more precise at formulating business cases in which RFID deployments actually create true business value: making processes more efficient, cutting down on theft of high-value merchandise, and attaining insight into inventory levels never seen before.

"Retailers are now approaching RFID with confidence," write Aberdeen Group analysts Russ Klein and Kevin Permenter in a June 2010 report, "seeking ways to minimize their risks while maximizing their returns and make core business processes, in-store operations, and customer-facing activities cheaper, faster and more accurate."

Waving the Magic RFID Wand

What recently amplified "the comeback," as Gaughan puts it, was a Wall Street Journal article that described Wal-Mart's latest RFID strategy: To "roll out sophisticated electronic ID tags to track individual pairs of jeans and underwear" in its stores starting in August.

"This ability to wave the wand and have a sense of all the products that are on the floor or in the back room in seconds is something that we feel can really transform our business," Raul Vazquez, a Wal-Mart executive, told the Journal.

As detailed in previous articles on CIO.com, Wal-Mart historically spent the bulk of its RFID efforts on programs to track palettes moving in and out of its distribution centers and warehouses. Wal-Mart's legions of suppliers were required to join in on those efforts. Now, it's time for EPC RFID tags to hit the store shelves and racks--and suppliers will once again have to step up their RFID efforts as item-level tagging expands. (Wal-Mart won't say what it's spending on the new RFID program, according to the Journal, but it confirms that it is "subsidizing some of the costs for suppliers.")

The move is not entirely surprising: The June Aberdeen report ("Item-Level RFID Tagging in Retail") notes that more than half of retailers that use or plan to use RFID are going after item-level programs. Why? Because that's where retailers see more business value--efficiency, insight and, presumably, ROI--can be attained.

Apparently, state Klein and Permenter, those warehouse RFID implementations haven't delivered enough return. "Many [retailers]," they write, "will tell you that RFID at the case or palette level is a waste of time and money."

At seven years in, retailers' RFID journey is showing more positive signs--but it's still an evolutionary slog with more work ahead. Gartner's Gaughan writes in his blog: "We still haven't come close to [meeting] the initial hype of RFID's potential."

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